Commodities take a hit

A selloff accelerates as portfolio managers look to unload in a scramble for cash amid recessionary worries.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Catherine Clifford, CNNMoney.com staff writer

It hasn't been officially called, but do you think we're in a recession?
  • Yes
  • No
  • Not sure

NEW YORK (CNNMoney.com) -- It's not just stocks suffering the pain of the global financial mayhem. Commodities like corn, coffee and oil are also taking a big hit.

The weakening world economy - and the stronger dollar - are causing many investors to bail out of commodities.

The S&P GSCI Index - which tracks the prices of two dozen raw materials including wheat, corn, sugar, copper and lead - has dropped nearly 29% from the start of the month.

The credit crisis has left portfolio managers strapped for cash. "Sell now, ask questions later has been the motto of most hedge fund managers," said Peter Grandich, the chief commentator for Agoracom.com, an online investor relations firm.

Commodity markets have seen "wholesale liquidation of anything and everything people can get a hold of, including the kitchen sink," said Grandich.

While prices have fallen steeply in recent weeks as fears of a global recession have intensified, the selloff started much earlier.

"The credit crisis just accelerated the sell off and made it go faster," said Grandich. Prices were "already declining before hedge funds had to start selling because of the credit crisis," he said.

The dollar and demand

Commodities also tend to move in opposite direction to the dollar, which has been on a tear of late as investors worry about a deep global recession.

The greenback was near a 2-year high against the euro Friday. While the "weak dollar caused a lot of buying of commodities for the past year," the surge in the value of the dollar has led to a selloff of those same commodities, said David Hightower, editor of the Hightower Report.

Commodities were also taking a hit from worries over falling demand, which has pressured oil prices. When the economy slows, consumers and manufactures use fewer raw materials.

"Just as in oil, we have demand destruction, demand erosion," said Hightower. However, measuring the level "is difficult depending on the commodities," he said. "The majority is anticipatory [and] that is what creates the most volatility," added Hightower.

Non-precious metals used in industry, like aluminum and copper, have fallen more quickly than prices of agricultural commodities.

"People still have to eat, but they don't necessarily have to build a new building," said Grandich.

Aluminum was trading at a 3-year low at 94.25 cents per pound. The last time the metal traded at these levels was the end of November 2005, when aluminum cost 94.20 cents a pound.

Copper, often used as a gauge for the broader health of the economy because of its diversified uses, settled at $3,986 a metric ton for the three-month contract. That's a far cry from July's record high of $8,940 a ton.

Meanwhile, coffee futures were trading at $1.09 a pound - the lowest price in 14 months. The last time coffee was at this level was Aug. 3, 2007. December corn futures were still hovering around a 10-month low at $3.73 a bushel on the Chicago Board of Trade and November soybean futures were trading at $8.64 a bushel on the CBOT.

Oil dipped to its lowest price in 17 months Friday, touching $62.85 a barrel, marking a 56% drop from oil's record high of $147.27 in mid-July.

Gold was trading at $730 an ounce Friday, which although up on the day, was significantly off recent highs. Gold cost $983.90 an ounce in mid-July and was over $1,030 an ounce back in mid-March. Gold trades with unique conditions, as some investors see gold as a safe haven during times of financial turmoil.  To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
The 13 most WTF gadgets From the weird to the gross, these 13 gadgets will make you wonder why they even exist. More
Best-loved cars in America These cars and trucks topped J.D. Power's APEAL survey, which measures how much owners like their new vehicles. More
America's most powerful cars A new 'horsepower war' has erupted among U.S. automakers and these are the most potent weapons in their arsenals. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.